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Problem 5-35 information used for the cash budget for second quarter

Sunland Products, a rapidly growing distributor of home gardening equipment, is formulating its plans for the coming year. Carol Jones, the firms marketing director, has completed the following sales forecast.

Month		Sales		Month		Sales
January		$909,000		July		$1,506,100
February		$1,006,600		August		$1,506,100
March		$909,000		September		$1,609,500
April		$1,152,600		October		$1,609,500
May		$1,257,100		November		$1,506,100
June		$1,405,000		December		$1,708,200

Phillip Smith, an accountant in the Planning and Budgeting Department, is responsible for preparing the cash flow projection. He has gathered the following information.

	All sales are made on credit.
	Sunlands excellent record in accounts receivable collection is expected to continue, with 60% of billings collected in the month after sale and the remaining 40% collected two months after the sale.
	Cost of goods sold, Sunlands largest expense, is estimated to equal 40% of sales dollars. Seventy percent of inventory is purchased one month prior to sale and 30% during the month of sale. For example, in April, 30% of April cost of goods sold is purchased and 70% of May cost of goods sold is purchased.
	All purchases are made on account. Historically, 75% of accounts payable have been paid during the month of purchase, and the remaining 25% in the month following purchase.
	Hourly wages and fringe benefits, estimated at 30% of the current months sales, are paid in the month incurred.
	General and administrative expenses are projected to be $1,564,000 for the year. A breakdown of the expenses follows. All expenditures are paid monthly throughout the year, with the exception of property taxes, which are paid in four equal installments at the end of each quarter.

Salaries and fringe benefits		$	320,900
Advertising			379,100
Property taxes			137,600
Insurance			192,800
Utilities			184,000
Depreciation			349,600
Total		$	1,564,000

Operating income for the first quarter of the coming year is projected to be $327,400. Sunland is subject to a 40% tax rate. The company pays 100% of its estimated taxes in the month following the end of each quarter.

Sunland maintains a minimum cash balance of $50,000. If the cash balance is less than $50,000 at the end of the month, the company borrows against its 12% line of credit in order to maintain the balance. All borrowings are made at the beginning of the month, and all repayments are made at the end of the month (in increments of $1,000). Accrued interest is paid in full with each principal repayment. The projected cash balance on April 1 is $58,600.

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